The Big Payoff?

Is it merely coincidental that subsequent to the confirmation of Brett Kavanaugh President Trump is trying to reward Senator Grassley, Judiciary Committee Chair, for his steadfast support in shepherding the nomination through the Senate Process? Of course, Iowa also is an important state in the mid-terms and President Trump had to do something to undo the damage to commodity prices caused by his tariffs. Corn prices, which have been falling for the last five years, have plunged in response to the trade war caused by the Trump tariffs.
President Trump’s response has been to direct EPA to move ahead with a rule making so that ethanol in gasoline can be increased from 10% to 15% . How this is to be achieved is a mystery as even the Obama EPA concluded that it did not have the authority to lift the 10% cap. That is a good thing because gasoline with 15% would void auto warranties, further damage two cycle engines, and force service stations to incur large costs to install additional tanks.

If it is true, that (sometimes) no good deed goes unpunished, then it is equally true that no bad policy goes unrewarded. The ethanol mandate is a relic of a backroom deal in 1990 to gain farm state support for the 1990 revision to the Clean Air Act. To hide the deal, democrats led by Henry Waxman wrote a formula for reformulated gasoline into law. Politicians pretending to be chemical engineers is all anyone needs to know beyond the fact that prior to passing the Clean Air Act Amendments, the oil and auto industries informed Congress that they could meet proposed tailpipe emission standards without being told how to make gasoline.

Mandating ethanol by way of an oxygenate requirement was not enough for the greedy, so in 2007 President George W. Bush signed legislation that mandated the use of increasing volumes of ethanol. That was predicated on the assumptions that gasoline consumption would continually increase and that corn based ethanol would be replaced with cellulosic ethanol made from switchgrass and wood chips. Within a year, gasoline consumption plateaued and the cellulosic industry never got off the ground. Since 2008, gasoline consumption has only increased 4% while ethanol production has increased 71%. That helps to explain why the President wants to force E-15 into the market place.

After Congress increased the mandate for ethanol blending, EPA created a compliance mechanism—Renewable Identification Numbers (RIN)—to track ethanol blending. RINs can be traded or sold which created another market for traders to get richer. Refiners that do not have a ready source of ethanol have been victims of the RIN market, some incurring costs that exceed their revenue.
Advocates claim that critics aren’t looking at the whole picture. They claim that ethanol cleans the air, reduces oil imports, and results in less CO2 emissions. Their claims are just so much hot air. Back in 1990, there was a fear of our dependence on imported oil which reached a high of 60% of our consumption. Today, without any new Congressional magic, imports are less than 20% .
Since ethanol has a much lower energy density than crude oil, using ethanol in gasoline results in a mileage penalty, so more gasoline ends up being consumed.. The problems with ethanol are far broader than a loss of mileage, not reducing imports nor improving air quality or reducing CO2 emissions.
Incentives to increase corn production have increased the conflict between production for food and production for fuel. 40 percent of the nation’s corn crop is used to produce ethanol, removing it from use as animal feed and food products. As a result, consumers pay more for food products, including milk, cheese, beef, poultry, pork, and cereal. What’s more, the ethanol quota diverts valuable cropland away from other agricultural uses. The damage done to motors and the cost that would be incurred by service stations have no useful benefits and hence, are pure waste.
But ethanol is a more powerful lobby than it was decades ago. In response to the government’s mandates to force more ethanol into gasoline ethanol plant builds have increased. It takes a lot of resources to keep them operating. So, corn farmers and ethanol plant owners are willing to spend a lot of money to maintain mandates that enrich them while picking the pockets of consumers, These are Bootleggers at their worst.


Founder and president of Solutions Consulting which focuses on public policy issues, strategic planning, and strategic communications.

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